Category Archives: Giants

12.20.13
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How to negotiate a ballpark deal without giving away the farm

If you haven’t heard, the City of San Jose finalized a five-year lease extension with the San Jose Giants this week. Talks were somewhat contentious for several months, as it was Giants ownership (San Francisco Giants) that spearheaded the Stand For San Jose-vs.-City of San Jose lawsuit two years ago. The relationship was so sour that the SJ Giants had to remove themselves from the lawsuit in order to repair the relationship with the City. The Giants, usually at the tops of the California League in attendance, had things pretty good with a favorable lease and a vast array of corporate sponsors to choose from.

In fact, it wasn’t that long ago that the Giants took the City for granted. In 2007 they even played the old stadium ransom game, threatening to leave if they didn’t get as much as $8 million to renovate Municipal Stadium. City let the San Jose Arena Authority manage the situation, so renovations on an annual basis were kept reasonable, a little over $1 million from that point until now.

So when the time came for the two sides to talk, you can imagine how uninterested the City was with the Giants’ sales pitch. The S4SJ lawsuit involved the Giants’ law firm, Pillsbury, and from what I heard, City was happy to let the Giants twist in the wind a little. Eventually cooler heads prevailed, resulting in the five year extension through 2018.

The lease remains dirt cheap at about $25,000 per year. In addition, the City is for the first time granting the sale of naming rights to Muni. Money from any naming rights deal will go into a capital improvements fund. The important takeaway is that the City is no longer responsible for general upkeep at Muni, nor will it be pushed into funding other improvements at Muni as the Giants had previously requested. In a related move, a deal to share parking with Sharks Ice next door was also reached.

With the coffers running low to fund ongoing facilities improvements, City has used naming rights successfully to take care of various small projects. Most recently, the venerable Civic Auditorium received a name change to the awkward sounding City National Civic, after City National Bank. And of course, there’s also SAP Center, which changed from HP Pavilion in a rather quick manner after the CEOs of HP and SAP talked it over. City National Civic’s deal is worth $240,000 a year, within the range of single-A ballpark naming rights deals. It remains to be seen if Muni will fetch more because of the Giants’ name and the size of the market or less because Muni’s elderly condition. In either case, there should be a number of local sponsors who should be expected to bid, Adobe and Orchard Supply Hardware to name two.

Or, if the parent SF Giants wanted to get really snarky about it, they could rename it Giants Stadium. Talk about planting a flag. The Sharks took over the naming rights to their practice facility from Logitech, and have been expanding that brand ever since with rinks in Fremont and uptown Oakland.

11.04.13
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In case you’re wondering who wears the pants in this house…

… it’s Major League Baseball.

The fallout started early this morning, when KTVU reached out to the A’s to get their reaction to MLB’s threat to move the A’s to AT&T Park.

Statement from the A's via KTVU at 8:30 AM Monday.

Statement from the A’s via KTVU on Monday morning

That was followed by AP sports scribe Janie McCauley reporting something similar, but without the weaselly-sounding “intend to” in it. Included was a statement from the Coliseum Authority (JPA):

“We are working on a deal that we believe will be beneficial for both our tenant and the people of this community,” the statement said. “We are confident that everyone involved sees the value in continuing for as long as possible the 45-year relationship between the A’s and the City of Oakland. While we cannot comment on the specific issues now under discussion or on whether there is any basis to recent rumors that Major League Baseball has played a role in the discussions, we are optimistic that a final deal is close at hand.”

Later, BANG’s Matthew Artz dug deeper, picking up more sentiment from East Bay pols.

Sources with knowledge of the Coliseum authority’s private deliberations Friday said there was movement toward softening its stance that the A’s relinquish control over concessions and signage revenue at O.co Coliseum, which comes at the expense of the Raiders.

“The key point is that the authority wants the A’s to stay in Oakland and is not willing to risk losing them over that issue,” said one source privy to the discussions.

Then Mark Purdy got into the JPA’s thinking in holding out over the extension:

Naturally, the A’s balked at the Coliseum’s original terms for a longer lease. Miley and his fellow board members reportedly held firm, believing that the A’s had no other options but to play at O.co in 2014. And at that point, MLB voices tossed out the concept of the A’s playing temporarily at AT&T Park until a new ballpark project could be developed elsewhere.

Also, don’t forget that the JPA hasn’t exactly shown a lot of urgency on behalf of the A’s. Consider what JPA board member and Oakland City Councilmember Rebecca Kaplan said a month ago:

And the six- to eight-year window should give Oakland plenty of time to get serious about building a replacement ballpark and luring the A’s to stay, Kaplan said.

You have to think that Selig’s threat action was motivated by this rather cavalier attitude towards the A’s.

It certainly appears that all that remains is for the A’s and JPA to make certain compromises and finalize the terms. One of the chief issues will be the $3 million in parking fees the A’s owe the JPA. A good compromise would be for the A’s to pay that money, which the JPA would turn around and use for the belated scoreboard revamp and other capital improvements. And the A’s should get that flexibility they’re seeking.

Concessions revenue is another matter. The A’s could retain control with their own cut of each beer or hot dog (this was originally negotiated when the A’s settled a lawsuit with the JPA after Mt. Davis was built). But how would the Raiders and Mark Davis react? Unlike the A’s, who are continuously profitable, the Raiders frequently flirt with the red – a seemingly impossible feat given the NFL’s extensive revenue sharing and TV contracts. Much of that is due to cap mismanagement during the Al Davis era. Some of that is attributable to lacking stadium revenues, especially concessions.  It seems unlikely that Mark Davis will bolt just because of maintaining the status quo, but he could also choose to build a case for leaving based on this. He and the NFL have been pushing the JPA on the Raiders’ own extension, Davis going so far as to prefer to demolish and build anew at the site of the current Coliseum. Such a plan would force the A’s out, a possibility that Lew Wolff has been rightly concerned about. MLB’s involvement has pushed the pendulum in the A’s direction.

It’s cruel that the NFL and MLB are (not so) stealthily playing tug-of-war with the JPA over the Coliseum. As the Giants would say regarding sharing AT&T Park or giving up territorial rights to the South Bay, It’s not personal, it’s business.

As for AT&T Park? Who knows, that threat may resurface down the road.

11.04.13
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MLB breaks out stadium negotiating playbook in Coliseum lease talks

Last week I received a flyer from the A’s urging me to get my season ticket plans wrapped up soon, as early as mid-November. Thanks to a Sunday report from Matier & Ross about MLB’s entree into the Coliseum lease discussions, I expect the A’s Ticket Services department to get a lot of angry, misdirected phone calls starting tomorrow morning. And I feel bad for them for having to deal with it.

The fact is that until recently, MLB has stayed out of the lease negotiations at Lew Wolff’s behest. As the lease comes closer to expiring with the two sides still far apart on the terms, baseball has decided to start playing the heavy. As we’ve seen in Miami and many other cities, MLB doesn’t play nice. That doesn’t mean that they’re going to start asking for hundreds of millions for a ballpark. Instead they’re playing the leverage game, threatening to move the A’s across the bay to AT&T Park if the Coliseum Authority won’t relent.

We’re told MLB is also demanding that the Coliseum give the A’s just a two-year lease extension – not the five- to eight-year deal the authority has been pushing.

The short-term lease would give the A’s more flexibility should the team’s owners swing a deal to move to San Jose – or beyond.

Let’s be clear about one thing: this is not MLB’s preferred option. They’d rather have the A’s and Giants play in their own ballparks, because getting them to share is messy when it comes to logistics, scheduling, and revenue sharing. While sharing has happened in the past, it hasn’t happened in almost 40 years. Plus the last thing MLB would want is to have a situation where the experiment goes so well that the Bay Area populace is convinced that there’s no need for two parks, or that the A’s seriously eat into the Giants’ revenue. Just as in other stadium negotiations, MLB has never been afraid to rattle sabers when it feels it can work to the benefit of one of its franchises. From this point forward, don’t expect anything less. Chances are that the JPA will buckle, because they know that the A’s tentatively playing away from Oakland can easily transform into the A’s permanently playing away from Oakland. From MLB’s standpoint, this is a question of loyalty. Oakland and Alameda County shown repeatedly that they’re willing to spend money and make things work for the Raiders. They have also demonstrated that they’ve been willing to move the A’s (and MLB) to the back burner at the most inopportune times. If the JPA doesn’t make concessions for the A’s, that’s just more proof that they aren’t truly willing to make the A’s a priority, which would make MLB less motivated to back Oakland’s efforts to forge a long-term deal. Raiders owner Mark Davis seems to prefer that they start working on a replacement Coliseum on the site of a demolished Coliseum, which if granted would leave the A’s without a place to play. Without a lease extension tied to a well-developed stadium plan, the Raiders would prefer to go year-to-year. The A’s would like to do a five-year deal with early termination if they’re impacted by construction of a new Raiders stadium. The challenge for the JPA is to put together a deal that caters to MLB’s needs while not jeopardizing their relationship with the Raiders and the NFL.

For the time being, Giants chief Larry Baer has stayed silent, probably at Bud Selig’s request. To say they wouldn’t accommodate the A’s would torpedo baseball’s plans and leverage, the same way Wally Haas and then-AL President Bobby Brown rejected Bob Lurie’s plans to share the Coliseum while SF figured out a downtown ballpark plan. That occurred in 1985. Now that MLB is a singular governing body with less stated conflict between the two constituent leagues, the Commissioner has the ability and power to influence the Giants. However, Selig’s track record has been to stall regarding the A’s for nearly five years. Now that a “manufactured” crisis may arise, could Selig be more inclined to come up a with a solution? I’m not holding my breath.

Logistically, sharing the stadium could be difficult for the teams. Naturally there are only two clubhouses at AT&T Park, unlike the more flexible setups at many arenas and new football stadia. The visiting clubhouse would have to be converted into the A’s temporary home while the Giants’ clubhouse would be used for A’s home opponents. There are also 10 potential date conflicts (not 9 as M&R reported): May 12-14, May 26-28, June 13-15, and July 3. That last date is the end of a Giants homestand and the beginning of an A’s homestand. Offloading those conflicts to Raley Field would be difficult because the River Cats already have the first two series and July 3 already booked at home. Day/night doubleheaders would be difficult to make work because of game days can easily stretch beyond eight hours for players and personnel because of warmup/reporting times.

Then there’s also the appeal for AT&T and the various other sponsors in China Basin. AT&T would undoubtedly love double the home dates and exposure. So would Virgin America, Intel, and ironically, GAP competitor Levi Strauss. That and many more subjects (concessions shares, non-game event revenue, ticket pricing) would be up for debate. In the end, the A’s would pay a handsome rent payment and surrender a big chunk of non-ticket revenues. Both teams would deduct stadium expenses against their revenue sharing payments. One way to look at is that the A’s rent would effectively be a rebate against the Giants’ revenue sharing payment – assuming it was structured to fit within the CBA appropriately. Selig doesn’t seem inclined to force the Giants to share, but he can work with the rest of the owners to make it worth the Giants’ while.

Already I’ve seen a lot of anger from fans swearing that they’d never see an A’s home game in SF, or that they’ll cancel their season tickets posthaste. There’s another angle to consider if the A’s were given this two-year window at AT&T Park. The A’s have never called a modern ballpark home, so any serious revenue-generating potential at a new ballpark remains theoretical at best. What if the window was MLB’s opportunity to prove (or disprove) the A’s viability as the second team in the Bay Area? It’s not the same as having a new ballpark to themselves, but the better amenities and location should be attractive to many fans and companies that  normally don’t attend A’s games en masse. After all, the city with the most ticket-buying A’s fans (number, not percentage) is San Francisco, not Oakland or San Jose. If the two-year window fails to positively affect the A’s bottom line, The Lodge may be more inclined to allow the team to move out of the Bay Area. While M&R hinted at a move as a product of failed stadium plans, I think this could be a bigger reason.

MLB has entered the fray, and they’re getting ready to lay down the hammer. For that we can thank A’s and Giants ownership for their stubbornness, Oakland and Alameda County politicians for their lack of urgency, and Bud Selig for not resolving this sooner when he had all the time to do so. Unless a Coliseum lease gets struck in the next month, this is only going to get uglier. A “silly” idea like sharing AT&T Park may turn into something quite sensible. The big issue looming is the endgame, which as Ray Ratto points out, is the can that gets kicked down the road for two years.

10.24.13
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Bloomberg pegs A’s franchise value at $590 million

In what will probably become an annual study, Bloomberg released MLB franchise valuations today. The timing, prior to the first World Series game, stands in contrast to Forbes’ release, which is usually on Opening Day. While there will continue to be heavy debate as to the veracity of the valuations (MLB financials are not public data), having a second set of numbers released is good at least for discussion purposes. Besides, the bubble effect we’ve seen with valuations the past several years has allowed Forbes to set a baseline for franchise sales, whether teams and leagues want to acknowledge the data or not.

There’s also a very useful, colorful, interactive info graphic that breaks down both franchise valuations and revenue sources. The former includes $110 million for each club’s 1/30th share of MLB Advanced Media, the league’s digital media arm. The latter indicates which teams have shares in regional sports networks, along with revenue sharing payers and receivers.

The A’s ended up 26th in the rankings with a $590 million valuation. That’s 26% higher than Forbes’ spring figure. Methodology is rather murky, but the two outlets seem to be using similar types of data (if not datasets). Bloomberg also has the A’s tied for 1st (with the Royals) among revenue sharing recipients with $36 million. That’s more than the $33 million the A’s brought in via ticket sales. The Giants, who were valued at $1.23 billion, paid in $21 million to the $480 million revenue sharing pool. The Giants may be worth more than twice the A’s value, but the media revenues aren’t as big a gap as you might think. Bloomberg has the Giants at $88 million via their evergreen deals with CSN Bay Area and KNBR, whereas the A’s pulled in $65 million thanks to new deals with CSN California and Entercom’s KGMZ over the last few years.

Curiously, quotes from A’s PR man Bob Rose and Giants control person Larry Baer provide some owner insight. While in the past Lew Wolff may have argued against the numbers due to perceived discrepancies in local revenue (Wolff thought they were overstated), Rose offers up the notion that the valuation may be low. If revenue is $175 million, Rose argues, then the team is worth 4x that amount, or $700 million. Previously I had multiples at 3x for low-revenue teams and 2x for high-revenue teams. Perhaps a rethinking is in order.

If Rose is correct, the cost to buy the A’s and build a stadium would cost upwards of $1.2 billion, not including land and infrastructure. Chances are they could get it, considering the attractiveness of MLB revenue streams. Of course, future value of the A’s would be heavily tied to whatever ballpark deal is made. If the A’s stay in a ballpark they largely have to pay for themselves, that would limit revenue potential. A publicly subsidized venue would make things easier on the A’s balance sheet.

All in all, it’s more reason for Lew Wolff and John Fisher to hold onto the club despite the ballpark territory stalemate. Then again, without a lease we may see that coming to a head soon enough.

09.26.13
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Selig announces retirement and transition plan

This release came in this afternoon from MLB:

Baseball Commissioner Allan H. (Bud) Selig formally announced today that he will retire upon the completion of his current term, which runs through January 24, 2015.

Commissioner Selig said: “It remains my great privilege to serve the game I have loved throughout my life. Baseball is the greatest game ever invented, and I look forward to continuing its extraordinary growth and addressing several significant issues during the remainder of my term.

“I am grateful to the owners throughout Major League Baseball for their unwavering support and for allowing me to lead this great institution. I thank our players, who give me unlimited enthusiasm about the future of our game. Together we have taken this sport to new heights and have positioned our national pastime to thrive for generations to come. Most of all, I would like to thank our fans, who are the heart and soul of our game.”

Commissioner Selig will announce shortly a transition plan in preparation for his retirement, which will reorganize centralized Major League Baseball management.

Selig has led Major League Baseball since September 9, 1992, when, as Chairman of the Major League Executive Council, he became interim Commissioner. He was unanimously elected Baseball’s ninth Commissioner on July 9, 1998.

Last year Selig indicated that his time as Commissioner would cease with the end of the current term. Selig has been extended twice at the request of the owners, who are very comfortable with him at the helm. And why shouldn’t they be? Since the 1994 strike, Selig has presided over more labor peace than the other three big leagues, while overseeing an unprecedented economic expansion (for baseball, at least). If we’re looking at the job Selig has done in terms of protecting The Lodge’s interests, he deserves an A. When it comes to other aspects of the game (drugs, replay and technology, rules), Selig hasn’t fared nearly as well.

Despite being left hanging by Selig on the San Jose matter, Lew Wolff continues to steadfastly support his fraternity brother.

“This is absolute confirmation of what I was hoping might not happen.”

Wolff has been consistent in saying that he prefers to act in the interest of the game first instead of his own (the A’s), a stance that keeps The Lodge out of potential infighting but frustrates A’s fans to no end.

Unlike the NBA and NFL, which had successors to David Stern and Pete Rozelle (Adam Silver and Roger Goodell, respectively) groomed for years, there is no obvious frontrunner to succeed Selig. It could be someone within baseball’s upper echelon, whether it’s Selig’s current right-hand man Rob Manfred or a respected former team executive like John Schierholtz. The selection of a new commissioner will require a 3/4ths vote – just like a franchise move – and any number of candidates could potentially have enough votes against them to prevent approval. As we know from Selig’s previous endeavors, he likes to show unanimity among the owners, but it’s hard to see how that will happen because of their divergent markets and circumstances. Selig could form consensus because he showed neutrality to them, often to the point of indecision in some extreme cases. It’s not clear that any other nominee will do the same, and no owner wants the job.

Selig has indicated that the executive level will undergo a reorganization, which makes sense. During Selig’s tenure more power has been consolidated within his office than at any other time in baseball’s history. In 1999 the league presidents were eliminated, and a few years ago COO Bob DuPuy was unceremoniously let go. If the owners don’t trust Selig’s power with anyone other than Selig, then it may be best to to redistribute those powers among multiple individuals. Plus, if The Lodge wants to go with someone who can be a figurehead for the owners and technocrats inside baseball, then the safest path may be to restructure the job so that not so much power is vested within the Office of the Commissioner.

It would seem that Selig will leave the A’s-Giants mess to his successor, except for some choice quotes from a CBS Radio interview with John Feinstein, in which he called the Coliseum a “pit”:

“It’s a pit,” Selig said. “It reminds me of old County Stadium and Shea Stadium. We need to deal with that. I’ve had a committee working on it for two or three years, and there’s no question we’re going to have to solve that problem.”

But hasn’t the committee been working on it for a long time? What’s the hold-up?

“We have, John, but I’ll tell you it’s far more complex,” Selig said. “Look, you have one team that wants to move and the other team doesn’t want them to move, and it’s a very complicated situation. Before I leave, I’m satisfied we’ll work out something.”

We’ve heard assurances from Selig before, so this one carries little weight. Then again, who knows? Selig’s hallmark is his deliberate nature. If the point is to wait to provide a solution that’s satisfactory to Giants and A’s ownership, then on his way out the door makes sense. That said, there’s an awful lot of inertia in this story. I’d be surprised if Selig had this all settled before the end of his term. He still hasn’t come to a good compromise between the Orioles and Nationals over the latter team’s television rights.

Let’s just say that I’m not holding my breath.

09.21.13
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MLB makes final filing for antitrust hearing, includes ML Constitution

Two weeks ago the City of San Jose made its final filing for the October 4 hearing. Now it’s baseball’s turn to file, making its own submission yesterday. Now that we’ve had the initial filings and the rebuttals, we can see how the two sides are formulating their arguments. Yesterday’s filing continues to assert the antitrust exemption over all, that the Piazza decision was flawed, that the City’s interpretation of the Flood case is too broad, and that MLB can take as much time as it likes to determine where the A’s should or shouldn’t relocate.

The big reveal was that a second document accompanied baseball’s reply brief: the MLB Constitution. PDF links are listed below:

In the City’s original complaint, it argued that MLB’s Constitution expired at the end of last year, which I thought preposterous. Baseball had to approve the Astros’ move to the American League, and some covenant had to reflect that. The new Constitution does show the new divisional arrangement, and continues to show the same territorial assignments as the previous one, with no change in language.

San Francisco Giants: City of San Francisco; and San Francisco, San Mateo, Santa Cruz, Monterey and Marin Counties in California; provided, however, that with respect to all Major League Clubs, Santa Clara County in California shall also be included;

…

Oakland Athletics: Alameda and Contra Costa Counties in California;

If you’re wondering what the shared two-team market definitions look like, here’s an example:

Los Angeles Dodgers: Orange, Ventura and Los Angeles Counties in California; provided, however, that this territory shall be shared with the Los Angeles Angels of Anaheim franchise in the American League;

Los Angeles Angels of Anaheim: Los Angeles, Orange and Ventura Counties in California; provided, however, that this territory shall be shared with the Los Angeles Dodgers franchise in the National League;

Even if City’s tactic was simply to get the Constitution out in the open, it’s a good thing. It’s not like they were going to win or lose the case based on this.

One thing to consider is the three-fourths rule commonly cited when it comes to franchise relocation. 3/4ths of the owners (23) need to approve any franchise move, whether it’s 30 miles or 3,000. Just as important is that 3/4ths of the owners are needed to do any number of other changes:

  • Control person owner change (ex: Lew Wolff for the A’s, Larry Baer for the Giants)
  • Franchise termination – some may associate this with contraction
  • Expansion
  • Realignment
  • Revenue sharing changes for individual clubs

Keep in mind that the A’s future could include any or all of the above remedies. Sure, I’m referring to mostly extreme, batshit crazy possibilities, but at this stage, I suppose anything’s possible. If the pro-Oakland folks want to get a new ownership group in or depose Wolff, 3/4ths. Want to contract and expand the team a la the Expos/Nats? 3/4ths. Got a unique way of compensating the Giants for giving up the South Bay or the A’s for giving up the Bay Area altogether? 3/4ths. Commissioner Bud Selig’s is supposedly retiring, so it’s unlikely he’d take on such difficult machinations during his lame duck senioritis period. He took care of a bunch of to-dos like replay and an expanded drug testing program in the last year.

Chances are that Selig’s successor will inherit this mess. If there is some jockeying for the job instead of a Selig “appointment” it could be interesting to see if the A’s and Giants try to lobby for one individual over another.

09.11.13
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Roger Noll declaration

Economist and Stanford Professor Emeritus Roger Noll made a declaration in support of the City of San Jose’s antitrust lawsuit against Major League Baseball. He also provided a (presumably paid for) analysis of the issues at stake. The following is Professor Noll’s complete statement. A PDF version is available here.

DECLARATION OF EXPERT WITNESS ROGER G. NOLL

1. My name is Roger G. Noll. I reside in Palo Alto, California. I am Professor Emeritus of Economics at Stanford University and a Senior Fellow at the Stanford Institute for Economic Policy Research, where I am Co-Director of the Program on Regulatory Policy. My educational background includes a B.S. in mathematics from the California Institute of Technology and a Ph.D. in economics from Harvard University. My complete curriculum vita is attached as Appendix A.

2. My primary area of scholarship is the field of industrial organization economics, which includes antitrust economics and the economics of specific industries. I have taught antitrust economics at both the undergraduate and graduate levels. I am the author, co-author, or editor of thirteen books, and the author or co-author of over 300 articles. Many of these publications deal with antitrust economics. I also have published extensively on the economics of sports, including Sports, Jobs and Taxes, co-edited with Andrew Zimbalist, which deals with the economic impact of sports teams and facilities and for which Professor Zimbalist and I wrote a chapter on the implications of the economic impact of teams and facilities for antitrust policy.

3. I have served as a consultant in antitrust litigation, including matters pertaining to sports. I have served as an economic expert for the players’ association in all major U.S. team sports (baseball, basketball, football, hockey, and soccer) on the economic effects of restrictions on competition in markets for the playing services of professional athletes, including testimony at trial in Freeman McNeil, et al., vs. National Football League (U.S. District Court, Minnesota) and John Mackey vs. National Football League (U.S. district Court, Minnesota). In Bernard Parrish, et al., vs. National Football League Players Association (U. S. District Court, Northern District of California) I testified on behalf of the players’ association about the value of licensing rights for retired NFL players.

4. Other cases in which I have testified at trial in recent years are the following:

• In re Application of MobiTV Related to U.S. vs. ASCAP (U.S. District Court, New York City);

• Reggie White, et al., v. NFL: Lockout Insurance & Lockout Loans (U.S. District Court, Minneapolis);

• SmithKlein Beecham d/b/a GlaxoSmithKline vs. Abbott Laboratories (U.S. District Court, Northern District of California, Oakland);

• Novell vs. Microsoft (U. S. District Court, Salt Lake City);

• DVD CCA vs. Kaleidescape (Superior Court, San Jose); and

• In the Matter of Adjustment of Rates and Terms for Pre-existing Subscription and Satellite Digital Audio Radio Service (Copyright Royalty Board, Washington, D.C.).

5. In addition to the cases in which I have testified at trial, I have submitted expert reports and/or been deposed in numerous matters. I have also testified before the U.S. Congress on antitrust and sports matters on numerous occasions.

ASSIGNMENT

6. Attorneys for Plaintiffs have asked me to analyze Plaintiffs’ allegations in this matter to determine the economic evidence and analysis that would be used to prove liability in support of their claims. In undertaking this task I have read the Complaint, which was filed on June 18, 2013. I also have read Defendants’ Motion to Dismiss, filed on August 7, 2013. Finally, I have made use of information that has been collected from other public sources and my four decades of research on the economics of sports.

7. The purpose of this Declaration is to provide a preliminary analysis of the economic issues in this litigation before discovery has taken place. Hence, I reserve the right to revise my analysis and amend my conclusions on the basis of new information that has not yet become available. In particular, I understand that this Declaration is being submitted in connection with settling of the pleadings and that I am not being asked to opine on the merits of the claims. I would like to have the benefits of the complete discovery record before reaching my conclusions on the merits.

ANALYSIS

8. The objective of an antitrust economics analysis of liability is to determine whether conduct by Defendants caused harm to the competitive process. Ultimately, harm to the competitive process means harm to consumers, in this case sports fans. My main conclusion is that preventing the Oakland Athletics baseball team from moving to San Jose causes harm to competition because relocating to San Jose would substantially increase the potential fan base and attendance of the team.

9. Major League Baseball (“MLB”) is made up of thirty teams. These teams are economic competitors in many markets, including markets for players, coaches, regional television rights, and product licenses. If teams are geographically close, they also compete for attendance among sports fans in a local area. Presently MLB has local teams that compete for attendance in Baltimore-Washington, Chicago, Los Angeles, New York and the Bay Area.

10. Economics research and prior litigation have concluded that each major professional sports league in the U.S., including MLB, possesses market power in the provision of major league games in its sport in North America. Among the ways that MLB exercises its market power is by controlling the number and geographic location of major league baseball teams in North America. MLB has adopted rules that define the “home territory” of each team in the league and that place restrictions on franchise relocation. For now irrelevant historical reasons MLB has placed San Jose in the home territory of the San Francisco Giants, even though a team in San Jose would be less of a direct competitor to the Giants than is a team in Oakland because San Jose is much further than Oakland from the Giants’ home stadium.

11. One domain of competition in MLB as well as other professional sports is competition among cities to attract or to retain a team. Economics research shows that the financial success of a baseball team depends on the economic and demographic characteristics of its home territory, the quality of its home stadium, and the financial terms and other arrangements concerning the stadium. Cities actively compete for baseball teams on the basis of agreements that they offer to a team concerning a home stadium. The alleged anti-competitive conduct in this case is Defendants’ inhibition of competition and restraint of trade through the application of restrictions on team relocation which are preventing the City of San José from competing with the City of Oakland for the Athletics Baseball Club (Athletics).

12. Economists who have studied the location of teams in a league have concluded that in some circumstances a league has a reasonable business justification for restricting relocation. In particular, because the success of a league depends on the financial success of each team, leagues have a valid interest in assuring that each team will enjoy sufficient popularity in its home territory to be financially viable. This pro-competitive justification does not apply to MLB’s refusal to allow the Athletics to move to the City of San José.

13. San Jose is much more attractive than Oakland as a home location for a baseball team for several reasons. First, San Jose has a much larger population base, and so substantially greater potential home attendance for a local team. Second, San Jose is located in the Silicon Valley, which is the corporate home to many of the world’s leading high technology companies. This feature of San Jose is important because an increasingly important component of the revenue of a major league sports team is the sale of luxury boxes and other reserve seating to corporations, law firms, and wealthy individuals. Third, San Jose has identified and made available to the Athletics a location for a new stadium that will be a substantial improvement over the facility and location where the Athletics currently play. For these reasons San Jose is a much more attractive home territory for the Athletics than Oakland. Moreover, relocation to San Jose is financially attractive to the Athletics precisely because it increases total economic output, which in sports is the number of fans in attendance.

14. Competition in the local market for major league baseball would be enhanced if the Athletics relocate to San José. By increasing the potential revenue of the Athletics, relocation to San Jose would increase the financial incentive of the Athletics to field a team of higher quality. Making the Athletics more competitive would intensify competition between the Athletics and the San Francisco Giants, the other Bay Area major league baseball team.

15. MLB has not yet set forth its complete business justifications for preventing the movement of the Athletics to San Jose, so a full analysis of this issue is not feasible at this time. In antitrust economics, a restriction on competition can be justified only if it is reasonably necessary to achieve a pro-competitive objective, which is defined as an improvement in performance that benefits consumers. Given that San Jose is substantially more economically attractive than Oakland as a home location for the Athletics, the only plausible reason for preventing relocation of the Athletics to San Jose is to protect the Giants from more intense competition from the Athletics.

16. Protecting an incumbent firm from losing business to a more efficient competitor is never a reasonable business justification for a restriction on competition. In this instance, such protection is especially unwarranted. Since moving to their new stadium in downtown San Francisco, the Giants are among the most successful teams in MLB. Indeed, the success of the Giants since relocating to a new and much superior stadium illustrates why the quality and location of a stadium is extremely important to the success of a team. While the Giants will experience more intense competition from the Athletics if the latter move into a much better stadium in San Jose, historical experience with stadium improvements demonstrates that increased attendance at home games of the Athletics will not come at the expense of the Giants, just as the Giants’ improved attendance since relocating to downtown San Francisco has not come primarily at the expense of the Athletics.

I declare that the foregoing is true to the best of my knowledge and belief. Executed on September 6, 2013 at Stanford, California.

ROGER G. NOLL

09.07.13
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In final pre-hearing response, San Jose takes full aim at MLB’s antitrust exemption

Friday was the last day that the City of San Jose had to file a response to MLB’s filing from a month ago. And so they did, as Joe Cotchett went after baseball’s antitrust exemption. He also brought renowned sports economist Roger Noll to back him up.

The thrust of Cotchett’s argument is that the ATE is limited to the reserve clause and goes no further, citing the Flood, Piazza, and Federal Baseball cases. Naturally, that runs counter to MLB’s argument back in August that the exemption was enshrined by virtue of its long standing and couldn’t be changed except by an act of Congress. What view Judge Ronald Whyte takes when the first hearing is held October 4 is unclear. I’m eager to find out.

In addition to the attack on the ATE, Cotchett argues that the motion to dismiss the case should be denied, because the plaintiff’s claim is ” ‘plausible’ in light of basic economic principles.” Now remember that the original claim was that MLB colluded to prevent San Jose’s competitive bid to get the A’s. The case essentially rests on this particular argument. If Judge Whyte believes the argument is plausible, the case moves forward. If not, the City goes back to square one.

MLB claimed in its filing that the San Jose’s assertion that California’s Unfair Competition Law wasn’t violated because it the supposed violation was an antitrust violation, but because of the ATE, there is no violation. San Jose countered Friday that this ignores the UCL’s additional definitions of “unfair”. Historically, state courts have had difficulty properly codifying what “unfair” truly means, making this yet another test. It’s that very test that should push the case forward, according to Cotchett. Moreover, a chronology of actions/non-actions that have led up to this point was provided. They outline the various stalling measures MLB and the Commissioner’s office have taken to prevent a timely decision regarding an A’s relocation to San Jose, including Commissioner Bud Selig asking San Jose Mayor Chuck Reed to delay a stadium vote.

Cotchett also brought out California Business and Professions Code section 17204, which especially points out unfair competition against cities whose population is larger than 750,000. Of course, that means the statute only applies to four cities: Los Angeles, San Diego, San Jose, and San Francisco. All other California cities have less than 500k population. Does that mean anything? We’ll see.

Finally, Stanford professor emeritus Roger Noll provided a declaration of support for the lawsuit. While it probably won’t have any material bearing on whether or not the case will go to trial, Noll’s presence could become important as a witness if the case does go to trial. Noll’s quote:

“there is no pro-competitive justification for MLB’s refusal to allow the Athletics to San José…There is no conceivable economic justification for protecting the market for one of MLB’s most successful teams (the San Francisco Giants) at the expense of one of the MLB’s least successful teams (the Athletics).”

Noll is referring to the teams’ off-field and box office success, not their respective on-field exploits. I’d like to see which sports economists MLB brings out to argue for the preservation of the antitrust exemption. Then again, even if the case goes to trial, it seems more likely that MLB will be forced to make a deal, instead of the alternative of airing a bunch of dirty laundry and threatening the ATE in earnest. Whoever wins, I’m excited for October 4. It’s a step, even if it’s a halting one.

Armchair antitrust experts, have at it.

08.02.13
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Stand for San Jose launches second lawsuit against City of San Jose

Earlier this week I added a section to the sidebar called Lawsuits so that people could easily find references to the ongoing legal battles among the City of San Jose, MLB, and the Giants. Little did I know at the time that the section would have to be expanded. Yet here we are with now a third lawsuit to keep track of. This time it’s between the same Giants-lawyered astroturf group that filed the first lawsuit, Stand for San Jose, and the City of San Jose.

Santa Clara Superior Court Case 1-13-CV-250372, filed Wednesday, seeks to challenge the transfer of the Diridon ballpark site [thanks John Woolfolk of the Merc] to the Successor Agency (SARA), whose oversight board is composed of San Jose and Santa Clara County representatives. In March, the State Controller ruled that the transfer of the Diridon parcels to the separate Diridon Development Authority was not allowed, which forced the City to hand over the properties to SARA. At the time, SARA had its own objections to the ruling, namely that it felt it had a deal with A’s ownership by virtue of the option inked in November 2011. The Controller ruled that the November deal came after the cutoff date proscribed by AB 1X26, whereas the City said that the date was meaningless. Naturally, the Controller stuck with its original ruling, which led to the June transfer of the land to SARA.

Keep in mind that the land wasn’t transferred or sold to the A’s. It was only moved from one governmental body to another as defined by the new law. The option was signed by the A’s, with the only obligation within the first five years being that the A’s pay a nominal annual fee.

S4SJ’s argument is that the option isn’t valid at all because of the ruling. It’s a strange set of circumstances because in the other lawsuit, S4SJ is challenging the entirety of the ballpark deal on three issues:

  • The EIR was “incomplete” (despite having been certified for two different-sized stadia and with updated traffic studies)
  • The deal would take funds away from schools and city services (hard to argue because per the terms of the AB 1X26, city/county/schools have to be made whole)
  • The deal was done without a public vote (City was dissuaded from holding a referendum by Bud Selig).

Now S4SJ is going after the SARA transfer, but what they’re really after is the option. The option is a basic tenet of San Jose’s lawsuit against MLB, and if S4SJ can disarm that threat the antitrust suit would take a big hit. The argument is that there’s no option because the Controller ruled against the transfer to DDA. But that’s as far as the Controller’s power goes. Once the land ends up in SARA’s hands, it can dispose of it as it sees fit, including to the “late” A’s. The Controller and SARA went back and forth after the final ruling. From the Controller’s final ruling:

The City feels that this finding is “simply form over substance and wastes valuable time, energy and resources to arrive at the same result;” however, the legislation is clear that the oversight board shall have the authority to dispose of all assets and properties of the former redevelopment agency (Health and Safety Code Section 34181 (a)). Any attempt to deny the oversight board its rights would be thwarting the intent of the legislation.

SARA’s argument is that the deal with the A’s was going to happen with either DDA (transfer upheld) or SARA (transfer rejected). Which is exactly what happened. San Jose Mayor Chuck Reed telegraphed the strategy at the time. Did the deal not count because the Controller ruled it was late? Is it a deal because of the technicality the City is trying to argue? Or is it a deal regardless?

The real question is, How quickly can S4SJ get a ruling on this? I have no idea how this lawsuit would proceed through the system, especially because it has a related case just starting its trial phase in the fall. S4SJ attorney Ronald Van Buskirk indicates that the two S4SJ lawsuits will be combined, likely creating further delay. Importantly, the new suit names SARA as a party. SARA didn’t exist when the original lawsuit was filed.

Woolfolk notes that the San Jose Giants aren’t a plaintiff/petitioner, which would presumably protect the lawsuit from the discovery actions taken by the City last summer. Still, it’s clear that the SF Giants are behind the whole thing since this move was timed a few weeks after the antitrust lawsuit – just as the S4SJ lawsuit was filed a month after the A’s option deal was struck. At this point, all of the players must have a good idea what moves can and will be played by their counterparts.

Armchair legal experts, have at it.

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P.S. – I have a request or two. Please try to stay on topic, and also try to stay away from the usual “XXXX Sucks” type of discourse. If all you’re going to do is vent, I’ll probably delete it. Bite a towel or something.

06.21.13
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Dust settles after the big lawsuit filing

I’ve spent much of the last week in transit, as my job requires a lot of travel all over the country. Some of the pictures and posts you’ve seen since the beginning of the season have been a byproduct of little side jaunts taken at the end of business trips or cashed in frequent flyer miles. It’s allowed me to visit a lot of the parks I’ve wanted to see fairly cheaply, though the downside is that it has severely reduced my attendance at A’s home games.

Another byproduct of near-constant travel is that I can’t get into a good writing rhythm. I’m already a rather deliberate writer, and I’m envious of the pros who can toss out 500 words constructed in cogent manner in only 15 minutes. Instead I’ve preferred to shift my writing to ever longer pieces, 1000-1500 words, eliminating many of the peripheral “busy” posts that I used to do.

Yet when the San Jose-vs.-MLB lawsuit was filed on Tuesday, I was left at a loss as to how I was going to cover it. While I get a lot of advice from lawyers and legal experts, I still went through the week uncomfortable about touching the legal issue with any real depth. I wasn’t sure I could do it justice (pun intended). Instead I sat back and read all of the great writing by many lawyers-turned/cum-baseball writers like Jason Wojciechowski, Wendy Thurm, and Craig Calcaterra. ESPN legal analyst Lester Munson covered the lawsuit in the broadest manner possible, but the effect of his piece was greater than most because of the wide audience. And we have plenty of lawyers who read and comment on this site. Judging from the last post, they’ve been waiting for this moment for a long time. I’m glad that they may have a chance to sink their teeth into something juicy like this. As for me, I’m glad that at long last the A’s plight is getting the attention it deserves (and San Jose to a lesser extent). (While I was in Phoenix on Thursday, the local ESPN affiliate did a wide-ranging interview with Tim Kurkjian, and the A’s/San Jose/Sewergate were one of the main topics!)

However, let’s be clear about what we should expect from this potential circus. While many can’t agree on what the outcome will be, let’s understand what’s really at stake.

1. San Jose isn’t really trying to overturn baseball’s antitrust exemption.

Attorney Joe Cotchett’s initial bluster aside, San Jose would be perfectly fine with territorial rights being modified, their basic structure left intact. That could mean sharing Santa Clara County or the Bay Area at large, or something in between. As long as they have the right to host the A’s, they’d be fine with territorial rights maintaining monopolies (or duopolies as the case may be) here and elsewhere.

2. San Jose didn’t decide to do this on a whim.

Mayor Chuck Reed told Lew Wolff last week that the City was planning to sue baseball. Councilman Sam Liccardo had been talking up the lawsuit threat since spring 2012. From what I hear Cotchett has been involved for nearly as long. What they’ve been doing during that time is strategizing the particulars. What they came up with is arguably weak from the standpoint of trying to overturn AE, but if the goal is shake up baseball, there’s a chance it could work. SewerGate became a most serendipitous event PR-wise – as serendipitous as rising floods of sewage can be.

3. MLB is not concerned… yet.

MLB knows San Jose’s strategy, and they will certainly push hard to get the case thrown out for lack of standing. If they succeed, we go back to the status quo and San Jose is at the mercy of baseball. That doesn’t mean that San Jose is done, it just means the City can’t force the issue. All parties, including the A’s, know this. The important thing for MLB is that San Jose remains an option, however slight, because if the only option is Oakland and a scramble for extremely limited public funds, the option is poor. Of course, the City could decide at that point that it would give up the seemingly quixotic quest for a MLB franchise. Knowing how the current mayor and leading mayoral candidates operate, that’s highly unlikely. The lawsuit is costing them nothing and giving the City a ton of press and awareness. None of it is bad except that it annoys Bud Selig, who is supposedly in his lame duck period anyway.

On the other hand, if the federal judge finds that the City does have standing, then MLB has to decide what it’s willing to risk during the pre-trial discovery phase, when pertinent documents are exchanged between the two sides. As we saw in the Stand for San Jose case, one side made the blunder of providing privileged information, which the opposing side tried to use in its case. S4SJ’s attorneys, who didn’t disclose or return the confidential docs until they were caught, then were dressed down by two separate judges and nearly thrown off the case. The Lodge has demonstrated in the past that they are very fearful of any releases of team or league financial data, forced or leaked. I wouldn’t expect them to fold like cheap tents, but if enough pressure is applied, the pendulum could swing in the City’s direction as the owners simply prefer the quickest exit to the fiasco. The quick exit won’t come cheap or easy because the issue is complex, as Selig has said (but never properly articulated).

MLB’s lawyers will argue that there is no contract, hence no standing. The City’s lawyers will argue that there could’ve been a contract if MLB hadn’t dillydallied. It’s not mentioned in the lawsuit, but they could easily point to…

4. The Earthquakes

Lew Wolff and San Jose have a contract in place to build a stadium. In San Jose. On land sold by the City to Lew Wolff that started with an option. While the stadium has been delayed due to financing and general economic problems, it’s getting done. Without tortious interference – the real issue in this case. The bar for some antitrust complaints may be lower in California than the federal standard, thanks to the Cartwright Act. Whether this passes muster is up for a judge to decide.

5. The A’s are a defendant

In suing MLB, San Jose is suing all 30 member clubs in the process. So even though Lew Wolff wants to move the A’s to San Jose, he isn’t joining the lawsuit. Wolff’s public statement indicates, yet again, that he doesn’t want any part of the legal process, fiddle-dee-dee. And it sort of makes sense given that teams are bound by the MLB Constitution not to sue baseball or each other. Except that…

6. MLB’s Constitution expired?

According to Cotchett, the last Major League Constitution expired at the end of 2012. Baseball hasn’t posted a new one, so it appears that they aren’t operating with one. It sounds crazy to think that baseball could operate without a Constitution for even a brief period, as the document lays out all manner of league and team business, in conjunction with the CBA. The most recent version dates back to 2005, as part of the Expos’ move contraction-and-expansion to DC. It outlines everything from banal matters such as the timing of the owners meetings to how the leagues and divisions are constructed, and pertinent to our ongoing discussion, club operating territories. You’d think that the document would at least be amended to include the Astros’ switch to the American League West. Right?

Then again, if the league is operating without a Constitution, does it mean that there’s a loophole? If there is no binding Constitution then are territories no longer assigned? I doubt it, there’s too much at stake. The New York teams aren’t going to allow Stuart Sternberg that kind of loophole to move the Rays. Prior to the gag order, the Giants pointed to the Constitution every chance they got to back up their T-rights claims. You think they’d let the document lapse? Even if there technically isn’t a Constitution, the clubs are certainly operating within the spirit of the legacy document, which is probably good enough for a judge. The Lodge is the Lodge is the Lodge, after all. Now, if MLB intentionally let the document expire so that no one can point to the constraints of T-rights, then we’ve just devolved into anarchy within the Lodge. Which probably isn’t a bad thing.

In all likelihood, MLB does have a new Constitution and simply needs to produce it. Issue rendered moot.

7. Where does Oakland fit into all of this?

Oakland is not a party to the lawsuit. That’s just as well, since there’s a good chance San Jose will fail and the A’s will have no choice but to deal with the East Bay. The “tail-between-legs” scenario is what they’ve been hoping for all along, not that they’re presenting realistic options should that happen (remember Victory Court?). The real problem for Oakland is simple: no one’s fighting over Oakland. The clubs are fighting over San Jose, and they’d fight over San Francisco if it came to that. No one outside of the Oakland-only holdouts and Larry Baer is talking about Oakland as anything more than a short-term solution. Have you heard any other owners talk about Oakland in terms of a permanent home for the A’s? Of course not, because it isn’t even entering their minds. The only thing helping Oakland at the moment is each owner’s self-interest. In this scenario Oakland is the safety school of cities, the girl from work you go out with because she’s accessible. And that’s what really hurts. Whether the neglect is benign (Coliseum deterioration, deprioritizing the A’s) or more “sinister” (ownership motivations), Oakland’s status as a baseball town is at best tentative. If San Jose comes out of this with the A’s, no other existing teams are going to start looking to Oakland as a viable MLB home. Expansion is out of the question. The best Oakland could hope for is a minor league club of some sort, either AAA (Pacific Coast League) or high-A (California League). If Oakland is truly afforded the opportunity to keep the A’s, they’ll be ransomed like many other cities have been. MLB will bring in the consultants (just like Miami) to say that a franchise there isn’t viable without a publicly-financed stadium. Then what?

Other observations:
Exhibit 3 in the filing is the CSL-written economic impact report commissioned by San Jose in 2009. Normally we roll our eyes at how these things are written, because they’re designed to convince mayors and city councils, not judges. The use of such a document against baseball is more than a little ironic.

During the first press conference, Cotchett trotted out the SVLG letter and list of companies as signed-on supporters of the lawsuit. He quickly backtracked on that. The letter is Exhibit 2.

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As I finished this post the plane descended over the Peninsula. I saw the lights on at AT&T Park while Candlestick Park sat silent and lonely. I wanted to get a good look at the Coliseum, but the view across the bay was obscured by a scratched up plane window and the encroaching marine layer. We landed at SJC and the plane was held on the tarmac because a computer malfunction at Southwest Airlines’ headquarters kept all other planes at their respective gates. How appropriate, I thought.